When talking about competitive advantage, I mentioned that the US subsidies industries through its defense spending. Today there is an AP article AP article with a good example of this.
In the US Army Cold Regions Test Center in Alaska, they are testing new vehicle headlights that use LEDs instead of light bulbs. The new headlights will last the life of the vehicle, draw less electricity, penetrate snow better and are easier on the eyes of oncoming cars. The army may equip all its vehicles with them.
So how is this a subsidy? The company that makes them will recoup all its R&D costs from the US and will get its production up an running. It will have a major advantage when bringing the product on to the market. If they are lucky, the product will catch on (like the HUmmer did) and their civilian production will balloon. If they aren't lucky, they at least make moiney off the contract with the Army.
By the way, the Test Center itself is used by American companies (ironically like Daimeler Chrysler) to test cars. It's a smaller subsidy, but access to the center saves them from investing in their own and gives them an advantage over foreign car makers.
Sunday, January 29, 2006
Friday, January 27, 2006
Income Glass- Half Empty or Half Full?
What if I told you that the income of the poorest fifth (or 20% ) of Americans grew by 19% in the last twenty years? Would that be a good thing or a bad thing?
According to the Center on Budget and Policy Priorities and the Economic Policy Institute, it's a bad thing because the income of the middle Fifth grew by 28% and the upper fifth grew by 58%.
See the article on Yahoo news.
On the other hand, one might say that this is just about right. That we are in good hsape when we are worried about whether the poorest fifth's income is rising fast enough (as opposed to rising at all).
The other point to make is that most of the people who were in the bottom fifth twenty years ago aren't there anymore. My daughters are both currently in the bottom fifth as they are just starting off in life. As they gain work experience and education, their income will increase several fold.
Am I saying that we shouldn't not worry about the well being of people in the lowest fifth? Of course we should. However, we shouldn't approach it the way these think tanks are suggesting.
According to the Center on Budget and Policy Priorities and the Economic Policy Institute, it's a bad thing because the income of the middle Fifth grew by 28% and the upper fifth grew by 58%.
See the article on Yahoo news.
On the other hand, one might say that this is just about right. That we are in good hsape when we are worried about whether the poorest fifth's income is rising fast enough (as opposed to rising at all).
The other point to make is that most of the people who were in the bottom fifth twenty years ago aren't there anymore. My daughters are both currently in the bottom fifth as they are just starting off in life. As they gain work experience and education, their income will increase several fold.
Am I saying that we shouldn't not worry about the well being of people in the lowest fifth? Of course we should. However, we shouldn't approach it the way these think tanks are suggesting.
Wednesday, January 25, 2006
Separating the Wheat from the Chaff
The Democratic Govenors Association released its "America Competes Plan." The plan was accompanied by dire predictions of the US spiralling downward if we didn't take steps to inprove our competitive edge.
But before getting into it, perhaps you should review the plan yourself by Clicking Here.
Okay, if you look at it you might say, "What's wrong with what they are saying?"
First off, the whole thrust of their argument, that America needs to compete, runs counter to the truism that nations don't compete, companies do. A lot of what they are proposing with regard to educationand healthcare is fine (in theory) from the point of view of improving American productivity and our well being. Improving our education system would improve our material well being with or without global trade. Failure to maintain a quality education system won't change the impact of foreign trade, but rather would most likely lead to decline in the growth of our productivity and thus to our wages (agian, trade or no trade).
The hand ringing about level playing fields for American companies is typical protectionist rhetoric and, as is usually the case, has just enough truth in it to elevate it from patently absurd to simply missing the point. Are there subsidies out there that help foreign companies compete with US companies? Sure. Does the US provide subsidies for its companies? The US gov't doesn't provide as many direct subsidies but does provide a lot of support in the form of protection, tax credits, R&D support, and defense spending. We're not the bad guys but our hands aren't clean.
But, more importantly, when a company here or there has trouble competing against a foregin producer, that's the company's problem, not ours as Americans. Case in point, for years the Japanese kept Motorola out of its wireless market through various regulatory measures. Who gained and who lost from this? Clearly, Japanese cell manufacturers gained and Motorola lost. But you have to keep in mind that these are just the producers and you also need to take consumers into account. When you do, you realize that Japanese consumers were hurt by having more expensive cell phones because there were fewer producers (i.e., Motorola) in their market. At the same time, American consumers benefited by having less expensive cell phones because there were fewer consumers (i.e., the population of Japan) in their market.
Herein lies the problem with these competitiveness arguments. They equate our national well being with the well being of our producers whne in fact our well being is more properly equated with the well being of our consumers.
But before getting into it, perhaps you should review the plan yourself by Clicking Here.
Okay, if you look at it you might say, "What's wrong with what they are saying?"
First off, the whole thrust of their argument, that America needs to compete, runs counter to the truism that nations don't compete, companies do. A lot of what they are proposing with regard to educationand healthcare is fine (in theory) from the point of view of improving American productivity and our well being. Improving our education system would improve our material well being with or without global trade. Failure to maintain a quality education system won't change the impact of foreign trade, but rather would most likely lead to decline in the growth of our productivity and thus to our wages (agian, trade or no trade).
The hand ringing about level playing fields for American companies is typical protectionist rhetoric and, as is usually the case, has just enough truth in it to elevate it from patently absurd to simply missing the point. Are there subsidies out there that help foreign companies compete with US companies? Sure. Does the US provide subsidies for its companies? The US gov't doesn't provide as many direct subsidies but does provide a lot of support in the form of protection, tax credits, R&D support, and defense spending. We're not the bad guys but our hands aren't clean.
But, more importantly, when a company here or there has trouble competing against a foregin producer, that's the company's problem, not ours as Americans. Case in point, for years the Japanese kept Motorola out of its wireless market through various regulatory measures. Who gained and who lost from this? Clearly, Japanese cell manufacturers gained and Motorola lost. But you have to keep in mind that these are just the producers and you also need to take consumers into account. When you do, you realize that Japanese consumers were hurt by having more expensive cell phones because there were fewer producers (i.e., Motorola) in their market. At the same time, American consumers benefited by having less expensive cell phones because there were fewer consumers (i.e., the population of Japan) in their market.
Herein lies the problem with these competitiveness arguments. They equate our national well being with the well being of our producers whne in fact our well being is more properly equated with the well being of our consumers.
World Economic Forum
The World Economic Forum got underway today in Davos, Switzerland. The forum participants have selected the following questions as the focus of the conference:
- How can China and India maintain sustainable development and manage the environment?
-What immediate steps are needed to address climate change in a changing economic landscape?
- On changing mindsets and attitudes, how can we create a global educational framework that fosters inclusivity?
- In creating future jobs, how should education systems be designed to respond to changing skills requirements?
- On regional identities and struggles: What should be done to close income disparity? How should instability in the Middle East be managed? From the World Economic Forum Website
It is interesting to note that all of these are questions of more of public than economic policy. That is to say that all require some kind of government response.
These questions will be worthy of discussion in our economics class.
- How can China and India maintain sustainable development and manage the environment?
-What immediate steps are needed to address climate change in a changing economic landscape?
- On changing mindsets and attitudes, how can we create a global educational framework that fosters inclusivity?
- In creating future jobs, how should education systems be designed to respond to changing skills requirements?
- On regional identities and struggles: What should be done to close income disparity? How should instability in the Middle East be managed? From the World Economic Forum Website
It is interesting to note that all of these are questions of more of public than economic policy. That is to say that all require some kind of government response.
These questions will be worthy of discussion in our economics class.
Friday, January 13, 2006
Budget Deficit Grows
So we're only two weeks into the new year and we find out that the US is facing a $400 billion budget deficit (click here for article on yahoo).
The question is so what? The real issue is not so much the deficit as the total debt.
According to the Bureau of Public Debt, the total debt is b now about $8.15 Trillion. That's up from $5.8 Trillion in FY2001. (Click here to see the data at the Bureau of Public Debt)
That's a lot of money but again, so what? The key is to compare debt to GDP
Given that current GDP is $12.6 Trillion GDP and in 2001 it was $10.1 Trillion, debt went from 57% of GDP in 2001 to 64% today.(GDP Data at Bureau of Economic Analysis)
Bummer of an increase.
The question is so what? The real issue is not so much the deficit as the total debt.
According to the Bureau of Public Debt, the total debt is b now about $8.15 Trillion. That's up from $5.8 Trillion in FY2001. (Click here to see the data at the Bureau of Public Debt)
That's a lot of money but again, so what? The key is to compare debt to GDP
Given that current GDP is $12.6 Trillion GDP and in 2001 it was $10.1 Trillion, debt went from 57% of GDP in 2001 to 64% today.(GDP Data at Bureau of Economic Analysis)
Bummer of an increase.
Tuesday, January 10, 2006
New Year, New Classes, Same Issues
2006 brings with it a new set of classes for me, and an impending congressional election for all of us. Other than that, it looks like we are struggling with the same issues. Here are a few themes that we will be carrying forward.
Iraq: As the Bush administration casts its critics as defeatists who want to cut and run, it gives itself room to start the inevitable draw down. As the election approaches, it will be interesting (if morbidly so) to see this how the contest between military and political needs plays out. Today there is word that the cost of the war may top 1 trillion dollars Click Here--
Terrorism: Unless there is a significant terrorist attack in the US this year, we may a shift in the political debate towards a consideration of the size of the threat versus the costs of the protection. If so, I doubt it will be a thoughtful and reasonable debate, but rather will be akin to debating abortion or gun control. (I often hope I'm wrong on these things.)
Economy: The numbers say that US economy is in good shape but people are fairly pessimistic. Which is right? Though I usually side with the numbers, the ballooning deficit and looming Social Security crisis are real problems in need of solution. Unfortunately, it is unlikely that we will see a solution in 2006.
Globalization: For an academic, the resurgence of socialism is a real riveting event (something worth getting a bowl of popcorn for). This will bear close watching. A good place to start is the opinion piece by Michelle Bechelet at Click Here-
Iraq: As the Bush administration casts its critics as defeatists who want to cut and run, it gives itself room to start the inevitable draw down. As the election approaches, it will be interesting (if morbidly so) to see this how the contest between military and political needs plays out. Today there is word that the cost of the war may top 1 trillion dollars Click Here--
Terrorism: Unless there is a significant terrorist attack in the US this year, we may a shift in the political debate towards a consideration of the size of the threat versus the costs of the protection. If so, I doubt it will be a thoughtful and reasonable debate, but rather will be akin to debating abortion or gun control. (I often hope I'm wrong on these things.)
Economy: The numbers say that US economy is in good shape but people are fairly pessimistic. Which is right? Though I usually side with the numbers, the ballooning deficit and looming Social Security crisis are real problems in need of solution. Unfortunately, it is unlikely that we will see a solution in 2006.
Globalization: For an academic, the resurgence of socialism is a real riveting event (something worth getting a bowl of popcorn for). This will bear close watching. A good place to start is the opinion piece by Michelle Bechelet at Click Here-
What Happened to the Strategy for Victory?
When I started this blog, the White House had just published its strategy for victory. After making some minor comments, I intended to go on to analyze it in some depth. Silly me, I failed to anticipate how quickly it would be overwhelmed by what pass for events in Washington. At this point I can't see spending any more time on the strategy than on the tax reform commission's report (remember that one?).
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